TMMF Best in France Project - Toyota Case Study: 25th January 2005 Toyota Case - Hec Mba Group Es2A

Best in France Project – Toyota Case Study TMMF
25th January 2005 TOYOTA Case - HEC MBA Group ES2A page 1
Best in France Project – Toyota Case Study TMMF
By HEC MBA Sept’04 participants :

- Eric JUILLET de SAINT LAGER
- Saurabh KUMAR
- Steven OPIO
- Kihyeon PAK
With the special participation of :

- Henri MAS, former Valenciennes Sous-Préfet
- Yves LOUZE, current Director of Valenciennes Chamber of Commerce and Industry
- Jean-Luc LEGAREZ, current Vice Director of Valenciennes Métropole Community
- Vincent BOUVIER, current Valenciennes Sous-Préfet
- Christiane HENNEAUX, current Project Assessor at Valenciennes Sous-Préfecture
- Didier LEROY, current Senior Vice President of Toyota Motor Manufacturing France
- Nicolas FAYOL, current External Relation Manager at Toyota Motor Manufacturing France
- Shingo KATO, current Toyota France Secretary-General
- Laurent FISCUS, former Sous-Préfet in Mission fully dedicated to the Toyota project
Table of Contents TMMF
1. Key features on the case ……………….….………..……….…. p. 4

2. Toyota and the European market ............................................ p. 6
3. Objectives of the players ……………………...…………………. p. 8
3.1. for Toyota .…………………..……………………..……….……… p. 9
3.2. for France .…………………..……………………..………….…… p.10
4. Decisional criteria ……………………………………………..….. p.11
4.1 in favor of the French candidacy ………………...……………..… p.12
4.2 not in favor of the French candidacy …..………………………… p.14
4.3 first list and short list decision matrix ……..…………………...… p.16
5. Actions developed by the players ………………………..…..… p.18
5.1 by France, prior to and during the project ….............................. p.19
5.2 by Toyota ………………………………..…………………..….….. p.21
6. Key factors of success in this project ………………….....……. p.22
7. Sustainable development post-project ………………..…..…… p.24
8. Appendix & exhibits ………………………………………..…….. p.26
Part 1 TMMF
Key features
on the case
1. The 5 key ideas of the Toyota Onnaing project TMMF
 Clear initiative taken by one French region
 Strong commitment of Toyota on the long run
 Two players both took a huge risk in the project
 Fundamentally different cultures understood each other
 Human dimension continuously present along the project
Part 2 TMMF
Toyota and the

European market
2. Toyota strategic & tactical approach TMMF
 Boost car sales outside Japan (appendix #15)
 Europe becomes the most profitable market after the US
 Design and produce the cars close to the final market
 Small cars is the biggest segment in Western Europe
 Opportunity in 1999 with suppression of quota on imported cars
Part 3 TMMF
Objectives for the

two players
3.1 Toyota objectives TMMF
 A new and modern plant in Europe located as close as possible

to customers and suppliers (appendix #12)
 Develop the leanest auto plant ever with the obsession of cost
reduction and management efficiency (appendix #14)
 Operate the plant within 2 years as opposed to usually 3
 Achieve an ambitious level of productivity mainly by optimizing

the management of Human Capital
 Establish a strong brand image as a local & European producer
3.2 France objectives TMMF
 Attract investment to generate business for local supply

companies (appendix #0)
 Create jobs to fight regional unemployment
 Indirectly accelerate the modernization of the French

automotive industry
 Promote French technological notoriety abroad
 Boost exports to bolster the country’s balance-of-payments
Part 4 TMMF
Decisional criteria
for Toyota
4.1 Criteria in favour of the French candidacy TMMF
4.1.1 Economical factors

 Proximity with Western European customers and auto part
suppliers
 Location in the Euro zone (money, customs and economy

influence)
 Employment reservoir providing both available and skilled

industrial work-force
 Modern infrastructure with roads, rail-ways, fluvial network,

airports and maritime harbours (appendix #13)
 Country offering a strong potential for the growth of commercial

market share
4.1 Criteria in favour of the French candidacy TMMF
4.1.2 Human factors
 International prestigious image of France (arts, luxury, culture)
 Proximity with Brussels European HQ (makes communication

easier and accelerates decisions)
 Good quality of life offered to the Japanese and their families
 Capacity to take into account the protection of the environment
 France is perceived as a “complicated” country which provides

a challenge to overcome
4.2 Criteria not in favour of the French candidacy TMMF
4.2.1 Economical factors
 Non competitive labour cost (appendix #1&2)
 Non productive 35 hours law (appendix #20)
 Expensive fiscal burden (appendix #3&4)
 Constraining labour regulation
 Restricted subsidies for foreign investment
4.2 Criteria not in favour of the French candidacy TMMF
4.2.2 Human factors
 Non English speaking country (appendix #16)
 Latin culture never experienced before by Toyota
 Very complex French administration organization (appendix #7&8)
 Bad image of French professionalism abroad
 Individualistic relationship to labour values (appendix #5&6)
 Poor infrastructure in the French province for foreign expatriates
4.3 Location decisional matrix TMMF
4.3.1 First short list of 40 possible sites
Eco. criteria France UK Germany Belgium Poland Turkey

Proximity ++ ++ + + - -
Euro zone ++ - ++ ++ - -
Economy ++ ++ ++ ++ + -
Labour cost - - -- - + ++
Lab. quality + + + - + +
Infrastructure ++ ++ ++ + - --
Subsidies + + + + ++ -
4.3 Location decisional matrix TMMF
4.3.2 Second short list of 4 possible sites
Mainly
France France UK
HR criteria
Nord Alsace Lorraine Derbyshire
Anticipation ++ - - -
Trust inspired + + + ++
Local pro-activity ++ + + +
Huge challenge ++ ++ ++ +
HQ proximity ++ ++ ++ -
Environment ++ ++ + -
Part 5 TMMF
Actions developed
by the two players
5.1 Actions developed by France TMMF
5.1.1 Before the project
 Prospect investment projects very early (appendix #9&10)
 Adopt basic psychological behaviour during the negotiation
 Seek the national optimum before the regional optimum
 Build trust to show long term commitment
5.1 Actions developed by France TMMF
5.1.2 During the project
 Organize the French administrations in team

 Appoint a sous-préfet in mission fully dedicated to the project
 Set administrative procedures in project management
 Adapt the type of communication to Toyota corporate structure
 Prove the 35 hours law is no constraint for a new company
 Assist the investor in recruiting & training its work-force
 Create adequate infrastructures for expatriates
5.2 Actions developed by Toyota TMMF
 Develop a new format of plant enabling the most cost-effective

management of human capital
 Evaluate each options including all human factors & audit them
concretely on the floor
 Understand the French regulation and abide by it (appendix #19)
 Identify corporate values and share them with local employees

 Establish the right management system before recruiting the
right talents accordingly (appendix #17)
Part 6 TMMF
Key factors
of success
6. What led the project to a genuine success TMMF
 Each player sought to identify the expectations and constraints

of the other player
 French administrations involvement in speeding up usual heavy

procedures (appendix #11)
 Respect and compatibility between cultures (appendix #21&22)
 Mutual trust in human relationships
 Transparency in the working relationships
Part 7 TMMF
Sustainable
development
7. Further investments after the 1st project TMMF
 Car manufacturing industry is both labour and capital intensive,

so any capital investment is made for the long run (appendix #18)
 Reach of full plant capacity
 Increase of production capacity
 Continuous process improvements
 Vertical integration of strategic components
 Increase the network of suppliers around the plant

 Launch of new product lines … ?
Part 8 TMMF
Appendix
& exhibits
#0 – Annual French foreign investments TMMF
Direct foreign investment abroad in M€

Direct foreign investment in France in M€
#1 – Hourly labour cost across Europe in 2004 TMMF
Hourly labour cost in Euro

UE average labour cost
30
25
20
15
10
0
l
ga ce ain an
d nd nd ia UK rg ce y ar
k n
rtu r ee Sp I rl ni la olla us tr ou ran an m ede
Po G F H A b F rm ne Sw
x em Ge Da
Lu
#2 – Social charges across Europe in 2004 TMMF
Social charges in % of total labour cost

UE average social charges
30%
25%
20%
15%
10%
5%
0%
l
ar
k
an
d rg UK ga nd nd y tria ain ce nc
e
de
n
m I rl ou rtu lla nla an s Sp ee ra e
ne mb Po H o Fi rm Au Gr F Sw
Da xe Ge
Lu
#3 – Total fiscal weight across Europe in 1998 TMMF
Fiscal pressure in % of gross profit

Average fiscal pressure in EU
60%
50%
40%
30%
20%
10%
0%
l
an
d ain ga UK y ce nd tria rg nc
e nd ar
k
de
n
I rl Sp r tu an ee lla s ou ra ni la m e
Po rm Gr Ho Au mb F F ne Sw
Ge uxe Da
L
#4 – Value added tax across Europe in 1998 TMMF
VAT in % of retail price

Average Vat in EU
30%
25%
20%
15%
10%
5%
0%
l
rg y ain ga nd UK c e tria nc
e an
d nd ar
k
de
n
ou an Sp rtu lla ee s ra I rl ni la m e
mb rm Po H o Gr Au F F ne Sw
xe Ge Da
Lu
#5 – Unionization rate across Europe in 1995 TMMF
Unionization rate in % of workers

Average unionization rate in EU
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
l
en ar
k nd an
d ia UK ga y nd ce ain ce rg
ed m ni la Irl ustr rtu an o lla r ee Sp ran ou
w ne F A Po rm H G F mb
S
Da Ge xe
Lu
#6 – French unionization rate TMMF
Evolution of the French unionization rate in % of the active population
#7 – French administration structure TMMF
French Public Territorial Consular Public
levels …
state establishment corporation organization company
1 president of rep. state organizations league of mayors chamber of EDF, SNCF,
National 2 parliaments (national research, and of council commerce, indus. La Poste,
1 government social council…) presidents and professions France Telecom
regional préfet 22 regional regional chamber
frequent operational
Regional + ministries
representation
council of commerce, ind.
representation
representatives presidents and professions
departmental prefet 95 general departmental
unusual
Departmental + ministries
representation
council chamber of ind.
representatives presidents commerce & prof.
district
District sous-prefet
inter-municipal
Agglomeration unions and
communities
36,000 mayors
Municipality with each one
municipal council
#8 – French administration involved with Toyota TMMF
French Public Territorial Consular Public
levels …
state establishment corporation organization company
1 president of rep. state organizations league of mayors chamber of EDF, SNCF,
National 2 parliaments (national research, and of council commerce, indus. La Poste,
1 government social council…) presidents and professions France Telecom
regional préfet 22 regional regional chamber
frequent operational
Regional + ministries
representation
council of commerce, ind.
representation
representatives presidents and professions
departmental prefet 95 general departmental
unusual
Departmental + ministries
representation
council chamber of ind.
representatives presidents commerce & prof.
district
District sous-prefet
inter-municipal
Agglomeration unions and
communities
36,000 mayors
Municipality with each one
municipal council
#9 – Plant construction schedule TMMF
early prospecting by Chamber of Commerce and Industry
1st meeting with Toyota at Valenciennes
2nd meeting with Toyota at the Paris Motor Show
Toyota launch an official European tender for their project
beginning of the site selection process
 approach public announcement of the selected site
site officially handed out
 study
plant construction
labour training
 selection
machinery implementation
 preparation pre-production
launch in production
 construction & training
1996 1997 1998 1999 2000 2001
#10 – Plant production schedule TMMF
#11 – Zoom on the “preparation” phase  TMMF
In only 9 months instead of usually 2 years France had to :

 gain 82 votes in the Community of Municipalities to agree on the project
 acquire 250 hectares of terrain with uncertain legal dispossession
procedures
 conduct urbanization and environmental authorization procedures
 pilot clearing works (archaeological search, OTAN pipeline deviation, 2nd
world war blockhaus destruction …)
 pilot servicing works (road, rail, water supply, electricity & gas network
upgrading)
 carry out 8 public surveys related to the territory development planning
 perform various administrative tasks to obtain residence permits and
working authorizations
#12 – Toyota locations across Europe TMMF
European HQ
Engine plant
300km
Final assembly
Research & D
#13 – Importance of local infrastructures TMMF
#14 – Compact plant layout TMMF
#15 – Toyota market shares evolution TMMF
1994 1997 1999 2004 2010*

Toyota market
share in the US 10% 11%
Toyota market
share in Japan 40% 45%
Toyota market
share in Europe 3% 5%
Toyota volume
sold in Europe 800,000 1,200,000
Trade regulation End of import
across Europe sales quotas
Production sold
in Japan 90% 50%
Production sold
in the US 40%
#16 – Communication theory in non-native language TMMF
 
Two people of the 100% 100%
same tongue speaking
their language = 100%
 
One different 100% 50%
interlocutor listening to
a native speaker = 50%
 
Two people speaking 50% 50%
in a third non-native
language = 25%
#17 – Toyota philosophy, management & recruitment TMMF
Toyota Philosophy Toyota Recruitment Strategy
TOYOTA WAY 1st = define the right values (management system)

2 values = Respect and TMMF management team had to guess in
1997 that Proximity Communication and
Continuous improvement Continuous Improvement would be two suitable pillars
TOYOTA PRODUC. SYST. 2nd = recruit the right talents and personalities
Indicates the right From 40,000 applications Toyota identified through psychological
testing and confirming interview 3,300 employees with suitable
management priorities profiles (according to 10 dimensions representing the 2 pillars)
TECHNICAL SOLUTIONS 3rd = define the short term goals to be achieved
Indicates the best day-to-day shop floor management and
possible solutions management by yearly objective
#18 – Sustainable development TMMF
Production launch – 1st shift
600 M€ and +1,500 people
Production increase – 2nd shift
+1,500 people
New engine assembly line
100 M€ and +300 people
Production increase – 3rd shift
+500 people
New logistic platform
New spare-part Toyota supplier
Press-tool capacity increase
2001 2002 2003 2004 2005 …
#19 – Typical French agreement protocol TMMF
Items specified in the agreement protocol of this project :

 amount of the total capital investment
 quantity of positions created
 targeted date of launch
 final sale price of the serviced terrain
 ending date for all related clearing & servicing works
 delay for the final delivery of all urbanization, environmental and working
authorizations
 average amount of all types of capital investment subsidy
 assistance for labour recruitment and training
#20 – Average yearly activity per person TMMF
Nb of hours worked per year / person
Portugal
Irland
Luxem bourg
Greece
Finland
Germ any
France
1 400 1 450 1 500 1 550 1 600 1 650 1 700 1 750 1 800 1 850
#21 – Cultural final quote on the project TMMF
Extracts of the inauguration speech of Mr Hiroaki WATANABE, President of

TMMF, on the 6th of January 2001 :
« Before accepting to undertake this project, I had many prejudices about France
and the French. But since I moved here I’ve been realising that the French and the
Japanese are obviously different, but that they have also many things in common,
among which a very strong culture. Let’s consider gastronomy : the delicacy for
taste and aesthetics are a real passion for the French and the Japanese, because
they express a strong cultural identity. (…) Similarly the Japanese and the French
are capable to adapt and work together while remaining loyal to their culture. This
is how our employees are now getting progressively used to our corporate culture
while TMMF is taking progressively place in the Nord-Pas-de-Calais landscape.
And I remain convinced that soon the direction of TMMF could be transferred to a
French »
#22 – Monochronic & polychronic cultures TMMF
Monochronic People (American) Polychronic People (French)
 Do one thing at a time  Do many things at once

 Concentrate on the job  Manage interruptions well
 Take time commitments  Objectives can be possibly achieved
 Low-context + need information  High-context + already have information
 Committed to the job  Committed to people and relationships
 Abide by the plans  Chang plans often and easily
 Great respect for private property  Borrow and lend easily
 Used to short-term relationships  Build lifetime relationships

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Best in France Project – Toyota Case Study TMMF

By HEC MBA Sept’04 participants :

With the special participation of :

1. Key features on the case ……………….….………..……….…. p. 4

 Clear initiative taken by one French region

 Strong commitment of Toyota on the long run

 Two players both took a huge risk in the project

 Fundamentally different cultures understood each other

 Human dimension continuously present along the project

Toyota and the

 Boost car sales outside Japan (appendix #15)

 Europe becomes the most profitable market after the US

 Design and produce the cars close to the final market

 Small cars is the biggest segment in Western Europe

 Opportunity in 1999 with suppression of quota on imported cars

Objectives for the

 A new and modern plant in Europe located as close as possible

 Operate the plant within 2 years as opposed to usually 3

 Achieve an ambitious level of productivity mainly by optimizing

 Establish a strong brand image as a local & European producer

 Attract investment to generate business for local supply

 Create jobs to fight regional unemployment

 Indirectly accelerate the modernization of the French

 Promote French technological notoriety abroad

 Boost exports to bolster the country’s balance-of-payments

4.1.1 Economical factors

 Location in the Euro zone (money, customs and economy

 Employment reservoir providing both available and skilled

 Modern infrastructure with roads, rail-ways, fluvial network,

 Country offering a strong potential for the growth of commercial

4.1.2 Human factors

 International prestigious image of France (arts, luxury, culture)

 Proximity with Brussels European HQ (makes communication

 Good quality of life offered to the Japanese and their families

 Capacity to take into account the protection of the environment

 France is perceived as a “complicated” country which provides

 Non competitive labour cost (appendix #1&2)

 Non productive 35 hours law (appendix #20)

 Expensive fiscal burden (appendix #3&4)

 Constraining labour regulation

 Restricted subsidies for foreign investment

 Non English speaking country (appendix #16)

 Latin culture never experienced before by Toyota

 Very complex French administration organization (appendix #7&8)

 Bad image of French professionalism abroad

 Individualistic relationship to labour values (appendix #5&6)

 Poor infrastructure in the French province for foreign expatriates

4.3.1 First short list of 40 possible sites

Eco. criteria France UK Germany Belgium Poland Turkey

4.3.2 Second short list of 4 possible sites

5.1.1 Before the project

 Prospect investment projects very early (appendix #9&10)

 Adopt basic psychological behaviour during the negotiation

 Seek the national optimum before the regional optimum

 Build trust to show long term commitment

5.1.2 During the project

 Organize the French administrations in team